The present invention generally relates to employee stock option plans. Particularly, the present invention relates to computer systems and methods for exercising and settling stock options.
A number of employers, e.g., companies, offer compensation and benefits to their employees via employee stock benefit plans, such as an employee stock option plan (“ESOP”), employee stock purchase plan (“ESPP”), restricted stock agreement plan (“RSA”), etc. Stock plans provide a variety of benefits for both the employer and employee. Employers, for instance, may benefit with increased tax savings, cash flow, and productivity, and employees granted a stake in the company therewith are able to share in the company's success. An employee stock option is generally a contractual right granted to an employee or employees that give employees the option to purchase company stock during a specified period at a predetermined price. An ESPP similarly allows employees to purchase company stock, however, rather than at a predetermined price, the employee usually purchases the stock at a discounted price. Under a restricted stock agreement, the company generally grants company stock to an employee subject to specific vesting and transfer restrictions.
Generally, when an employee, such as a company executive, decides to exercise the option, the employee must make the appropriate arrangements to fund the purchase. For example, assume company XYZ gives employee A an option to purchase 1,000 shares of company stock at $100/share. Assume further that employee A decides to exercise the option at some later time when the stock is trading at $200 a share. To do so, employee A must pay the option price of $100,000 to the employer for the company stock. The employee may sell the stock at market price to realize the profit from the sale. Certain companies prohibit cashless exercises of stock options for executives and officers of the company because they construe such market transaction to be an extension of credit or an arrangement for an extension of credit under section 402 of the Sarbanes Oxley Act of 2002. Exercising such stock options may therefore prove to be burdensome for some individuals and/or may be time consuming insofar as the employee must make alternate financing arrangements for the purchase. Accordingly, in this respect, there is a need for improved methods and systems for exercising stock options.